23/11/2020

Article

Future of Energy

No-one could dispute it’s been quite a year. But while the Covid-19 pandemic has had – and continues to have – a significant impact on the global economy and commodity markets of every type, it’s not the only driver to watch as we head into winter.

So what else do you need to pay attention to?

As well as supporting customers who buy their gas and electricity on the wholesale markets via flexible contracts, the market experts on our Optimisation Desk have been sharing some pointers in the latest Winter Outlook report.

Demand versus capacity

Of course, demand is a key driver of market behaviour. With a second, softer lockdown currently in operation, energy demand is obviously reduced. But once – if – that eases, and we head further into winter, keeping an eye on how levels change will be important.

With so much uncertainty, how capacity is managed will also influence markets. Already, National Grid has issued two electricity margin warnings on 4 and 5 November – both cold, still days.

As we rely on increasing volumes of wind power, still days when the wind doesn’t blow are going to cause more of a problem.

Back-up from continuous generation is therefore key. But with a number of our nuclear generation plant offline for maintenance until December, any delays are likely to compound that problem.

Thankfully, gas storage levels are forecast to be sufficient to offer greater flexibility.

Relying on interconnectors

National Grid is estimating this winter’s de-rated supply margin at 4.8GW – compared to 7.8GW last winter. It says this is a sufficient cushion, with imported interconnector supply topping up any shortage in home-grown generation.

However, if there are outages and increased demand in Europe, some analysts are speculating that interconnectors may not deliver.

Then there’s the influence of that favourite of British topics – the weather.

A colder winter?

This year, we are due a greater ‘La Nina’ weather influence, which is likely to bring colder weather to the UK in the earlier part of winter. La Nina also influences the US and Asia – where colder weather will create stronger competition for imported Liquid Natural Gas (LNG).

But other factors – for example, Quasi Biennial Oscillation and Artic sea ice levels – look set to create opposing forces, suggesting warmer influences.

So while the outlook is not certain, December is expected to be cold, with an unsettled weather picture then emerging for early 2021.

Unanswered questions over Brexit

Elsewhere, we are carefully watching the carbon markets – with ongoing volatility after a drop in the value of allowances around the first lockdown.

Brexit is creating more uncertainty. For example, will the UK continue to participate in the EU Emissions Trading Scheme?

Also, what will happen to interconnector imports? And what will the larger impact be on our economy?

There’s also the US election to consider, plus relations with Russia. And wider socio-economic impacts on the price of energy commodities including oil…

To get the full picture, you can download a copy of the Optimisation Desk’s Winter Outlook report. Non-flex or non-supply customers can email to request a copy, and existing flex contract customers can download a copy via Risk Navigator.

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